by Brentt Taylor — Posted April 24, 2013

The financial and housing crisis of 2008 has brought about many changes to the housing market. Some have been very good, while others have been bad. It has also brought about new opportunities for investors that did not exist prior to the housing market crash.

With so many people going through foreclosure, the demand for rental properties has increased. Investors, looking for long term profit have been quickly purchasing foreclosed homes and turning them into rentals.

However, this housing market has also created the perfect opportunity for short-term investors to make a profit on rental property without a large investment.

Purchasing Home Owner Association (HOA) Liens At Auction

Savvy investors have found that there is a way to make a quick profit from HOA liens. These liens, which are placed against a home that has failed to pay its dues, are often quite inexpensive at auction. Much like other liens, once the debt is purchased the investor has full capabilities of pursuing collection.

There is a twist, however, that makes this type of debt purchasing more lucrative.

A loophole in most state laws gives these types of liens the status of “super liens” or “super priority liens” which places them above the first mortgage when it comes to collection activity. This also gives the lien holders the authority to foreclose on the property, before the bank.

Lien holders have begun to purchase these debts, and rent out the homes until the bank foreclosure goes into effect. This can give the investor anywhere from 3 months to 3 years to collect rent on the property before negotiating with the bank.

When the bank finally forecloses on the property, the lien must be paid for them to assume control, so the investor has collected rent on the property and then has the lien amount repaid by the bank. It is the perfect money-making opportunity.

Of course, as with any type of investment opportunity, there is always risk. You may purchase a HOA lien and find that the first mortgage finalizes foreclosure before you ever have a chance to rent the property. While this will reduce the profit you make, your investment will still be repaid because of the “super” status this type of debt holds. The mortgage lender cannot assume full title of the property until that debt is paid.

This has become a very popular investment opportunity in places like Las Vegas. In 2011, a new law was passed that slowed the foreclosure process down, despite the large amount of distressed properties in the state. Now, on average, a home can take two to three years to completely go through the foreclosure process. This alone allows the HOA lien investors to collect rent for a year or two before having to move on to another property.